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On Friday US news sources reported Microsoft cut the price of its hosted Office 365 service by up to 20%.

Microsoft says it dropped Office 365 prices because it has become more efficient. While this may be true, there’s a more pressing need for the software company to sharpen its pencil: Office 365 looks expensive when compared to rivals like Google Docs or Zoho Office.

Direct comparison is difficult. Office 365 offers a different mix of applications and services. At core it is a suite of cloud applications based on the familiar Microsoft Office along with tools making it easier for co-workers to collaborate and simplifying communications. If you don’t like or trust web apps, you can with existing desktop versions of Office.

Lower overall costs

While functionality is important, Microsoft’s key sales pitch is the savings companies make by reducing or eliminating local servers. It also means less pressure to upgrade desktop hardware or, more importantly these days, the web applications can be used from phones and tablets.

Cloud software means less day-to-day worry about backups and operational matters. Small businesses need less technical hand-holding, Microsoft support is part of the Office 365.

At the time of writing (Monday morning) there hasn’t been a local announcement and the prices on Microsoft’s NZ site remain unchanged at NZ$9.25 per user per month for the basic service – that’s half as much again as Google Apps. You could argue there’s more in the Microsoft offering – although some would debate that.

Reducing the price gap

The key here is Office 365’s headline price is notably higher than Google Apps’ price. A few dollars might not seem much, but over multiple users and months it can soon add up to a hefty premium.

Microsoft needs to sharpen its pencil. A 20% price cut is a start. Although Microsoft is right to position Office 365 above Google Apps, it needs a small premium, not a hefty one.

2 thoughts on “Microsoft Office 365, nice idea needs sharper price

  1. I have practised a cunning plan since cash Converters came to New Zealand in the nineties. Stay 1 version back from the latest Office package and buy it at Cash Converters for around 100 bucks. I’m using Office 2007 at the moment and won’t upgrade to 2010 until Cash Converters heaves it out the door for around $120. Office 2007 does all I need (as did Office 2003, my previous version). Actually, that’s Microsoft’s most pressing problem, after the cloud: there’s no need to upgrade anymore as one version does little more than the previous when taking basic word processing and spreadsheet use into account.

    • That makes sense.

      Microsoft Office has evolved to suit corporate users far more than individuals and small businesses, many of the recent upgrades seem to be mainly for the benefit of big company users.

      It’ll be interesting to see what happens with sales of the new version which is expected later this year. Companies will snap it up, I’m not sure individuals will.

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